Fixed income solutions

Fidelity International (Fidelity) has established an outstanding reputation in the management of fixed income portfolios since 1990. Our impressive performance is the result of a well-defined investment philosophy, a commitment to research and an established portfolio management process.

It is the combination of these strengths that differentiates Fidelity from our competitors in fixed income portfolio management. It allows us to consistently meet our clients' needs, delivering attractive risk-adjusted returns irrespective of the market environment.

We believe that Fidelity, more than any other company, has a single-minded determination to deliver the best for our clients. The strength of our resources - throughout the business - ensures we can achieve this goal.

A team culture dedicated to performance

Our approach combines the specialist expertise of portfolio managers, credit and quantitative analysts, and traders. We have teams of specialist fixed income analysts in London, Hong Kong, India and Tokyo and can also draw on the work carried out by Fidelity Management and Research (FMR), in Boston. As a result, we are able to leverage the findings of over 200 fixed income specialists* and with this team - one of the largest networks of its kind in the world - we are able to leverage the international resources to identify opportunities and ensure consistency in portfolio style and performance. The remuneration of all team members reflects the performance of the portfolios they influence, ensuring that the objectives of our team members and our clients are inextricably aligned.

 

Portfolio managers have final responsibility for all investment decisions and strategy relating to their portfolios. Quantitative analysts search for investment opportunities and measure the risk profiles of portfolios. Credit analysts, through face-to-face meetings and detailed analysis, identify strong credit stories and avoid picking deteriorating credits. Our credit analysts also work closely with Fidelity's renowned team of equity analysts to provide extra insight into business plans of corporate bond issuers. Traders act as the eyes and ears of the portfolio managers, constantly searching for the best opportunities and prices.

Using multiple strategies to add value

Over the past decade, fixed income markets around the world have changed significantly. There are now more non-government issuers, they are more varied and they raise capital in more sophisticated ways. Changes to the macroeconomic environment have also had a direct impact on the style of portfolio management. As a result, fixed income markets offer a wide range of exploitable opportunities. We believe that a multi-strategy approach presents the best way to capture these opportunities, allowing us to generate attractive risk-adjusted returns.

The strategies that we use include:

  • Asset allocation - a portfolio's assets can be spread across various markets and different bond classes to create return while managing risk by means of hedging.
  • Yield curve positioning - our portfolio managers use combinations of bonds with varying durations to achieve the overall level of duration exposure they are looking for. In this way, we take advantage of the shape of the yield curve as well as changes in that shape.
  • Interest and exchange rate expectations - we prefer trades that come from examining yield curve shapes and the relative value of different markets for their robustness. While we do not forecast the major currency pairs, we do take open currency positions from time to time when we are keen to buy an underlying bond market and when the cost of hedging is high.
  • Sector allocation - using credit and quantitative analysis, our portfolio managers decide on the weightings given to the various credit rating and industry sectors.
  • Issuer credit analysis - besides ratings from external agencies, we also make use of our own in-depth analysis of an issuer's ability to make interest and capital payments.
  • Security valuation - a single organisation may have a number of bonds in issue, so as well as deciding whether the issuer can service its debt, our analysts and traders look at which of its bonds represent the best value.

Building portfolios for our clients

Our portfolio managers have ultimate responsibility for portfolio construction and their primary role is to see that the client's objectives are met. They gather recommendations from analysts and traders and supplement these with their own ideas so that their portfolios reflect the best of Fidelity's investment expertise.

When creating a portfolio, the manager ensures that:

  • no single strategy has an inordinate impact on the fund, in comparison with other active positions
  • the active strategies have as little correlation with each other as possible
  • the probability of each active strategy being profitable is high

In this way, the manager is able to diversify the portfolio's active position. When it is successfully implemented, this approach can result in higher returns with lower than expected volatility or risk.

Controls are an integral part of our process. Risk control is integrated into our management process in the way we select individual securities. Portfolio managers adhere to guidelines for duration and credit and currency exposure relative to their benchmarks.

Portfolio management, trading, and administration are carried out by separate teams. We also have oversight committees, compliance teams, and controls on our employees' personal security trading. These measures reflect our aim to be in a class ofour own in terms of business ethics, as well as investment performance and client service.

Our investment philosophy

We believe there are many different factors that affect bond prices. Conducting our own research on markets, sectors, industries, yield curves and individual bonds, using credit and quantitative analysis, is core to our investment process. Portfolio managers combine this research with highly focused trading skills to build multi-strategy portfolios in a way that delivers attractive returns.

* As of 31 March 2011. These figures reflect the resources of FIL Limited and FMR LLC. FIL Limited is able to access sub-advisory and research services from subsidiaries of FMR LLC. FIL Limited and FMR LLC are separate and independent companies with certain shareholders in common.